Question 44 Under a fixed exchange rate, suppose that the economy initially stays at the long-run equilibrium of full- employment output level. After permanent fiscal expansion, when the economy adjusts from its short-run equilibrium to the new long-run equilibrium, DD remains unchanged; AA shifts back to its position in the initial long-run equilibrium. DD shifts to the left; AA shifts up. Both DD and AA shift back to their positions in the initial long-run equilibrium; DD shifts back to its position in the initial long-run equilibrium; AA remains unchanged. DD remains unchanged; AA shifts down.
Question 44 Under a fixed exchange rate, suppose that the economy initially stays at the long-run equilibrium of full- employment output level. After permanent fiscal expansion, when the economy adjusts from its short-run equilibrium to the new long-run equilibrium, DD remains unchanged; AA shifts back to its position in the initial long-run equilibrium. DD shifts to the left; AA shifts up. Both DD and AA shift back to their positions in the initial long-run equilibrium; DD shifts back to its position in the initial long-run equilibrium; AA remains unchanged. DD remains unchanged; AA shifts down.
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter19: International Finance And The Foreign Exchange Market
Section: Chapter Questions
Problem 5CQ
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